Category Archives: Legal

Philippine Law: Violation of Airline Passenger Rights

by Geraldine Rullan-Borromeo
(Manila City, Philippines)

What do you do when you have a first class ticket and you are forced by an airline to move to the tourist section?

Worse, can an airline deplane you upon suspicion that your travel documents are fake?

Article 1755 of the New Civil Code provides that: “A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious persons, with a due regard for all circumstances.”

In the case of AIR FRANCE vs. RAFAEL CARRASCOSO, G.R. No. L-21438 (September 28, 1966), Rafael purchased a first class round trip ticket from Air France to fly for a pilgrimage to Lourdes on March 30,1958. In Bangkok, the Air France Manager rudely forced him to vacate the “first class” seat that he was occupying because a “white man had a “better right” to the seat. Rafael refused and told the Manager that “his seat would be taken over his dead body.” Since many of the Filipino passengers got nervous in the tourist class and came across to plead with Rafael, he reluctantly gave up his first class seat.

Rafael later on filed a case in a Manila court which upheld his rights and the case was brought up to the Court of Appeals and the Supreme Court. The courts all held that the ticket, which is a contract to furnish a first class passage covering the Bangkok-Teheran leg, was dishonored with bad faith as Rafael was forced to leave his first class accommodation.

The courts rightly held that: “Passengers do not contract merely for transportation. They have a right to be treated by the carrier’s employees with kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities and abuses from such employees. So it is, that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an action for damages against the carrier.“

The 1966 decision of the Supreme Court awarded P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys’ fees for the inconvenience, embarrassments and humiliations Rafael suffered, causing him mental anguish, serious anxiety, wounded feelings and social humiliation.

Again, in JAPAN AIRLINES (JAL) VS. JESUS SIMANGAN, G.R. No. 170141 (April 22, 2008), the courts upheld the rights of a passenger under a contract of carriage. Jesus was to donate a kidney to his cousin, Loreto, in the U.S.A. He then purchased a round trip plane ticket from JAL. On the date of his flight, he checked-in at JAL’s counter and at the immigration counter where his plane ticket, boarding pass and his visa were examined. He was then allowed by JAL to board.

The turn of events began when JAL’s crew accused Jesus of carrying falsified travel documents and told him that he would only use the trip as a pretext to work in Japan. After the stewardess demanded to examine his travel documents, she arrogantly ordered him to deplane over his pleas and protests.

On the ground, Jesus was refunded the cost of his plane ticket less a deduction and was offered to be rebooked the next day after confirmed that his travel papers were in order. Jesus did not accept the offer and filed an action for damages against JAL with a Valenzuela City court, alleging that he suffered terrible embarrassment and mental anguish. The court decided the case in his favor and held that in “summarily and insolently ordering him to disembark while he was already settled in his assigned seat, JAL violated the contract of carriage which caused him embarrassment and besmirched reputation; and that when he was finally not allowed to take the flight, he suffered more wounded feelings and social humiliation.”

JAL’s attempt to rebook his flight did not relieve it from liability as the damage had been done to Jesus. Upon appeal, the Courts of Appeals cited Ortigas, Jr. v. Lufthansa German Airlines, (GR L-28773 June 30, 1975, and declared that “inattention and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers to the award of moral damages in accordance with Article 2220 of the Civil Code.”

Again on appeal, the Supreme Court in a 2008 decision held that JAL was liable for P500,000.00 in moral damages, P100,000.00 in exemplary damages and P200,000.00 in attorney’s fee.

During the trial, however, JAL claimed to have suffered damages as Jesus caused the publications of his complaint against JAL in the newspaper. The courts further held that since JAL is a common carrier and it illegally bumped off Jesus, the publications involved matters about which the public has the right to be informed because they related to a public issue. The constitutional guarantee of freedom of the speech and of the press includes fair commentaries on matters of public interest was upheld and JAL’s claims for damages was denied.

Thus, once an airline issues a confirmed ticket to a passenger with a specified flight, class and date, a contract of carriage arises, and the passenger has every right to expect that he will board that flight, on that class and on that date. If any of these specifications on his ticket is changed, then the airline opens itself to a court action for breach of the contract of carriage.

“The breach of the contract of carriage creates against the carrier a presumption of liability, by a simple proof of injury, relieving the injured passenger of the duty to establish the fault of the carrier or of his employees; and placing on the carrier the burden to prove that it was due to an unforeseen event or to force majeure. “

These two cases illustrated that simply in a court action for breach of contract of carriage, all that is required of the passenger is to prove that he purchased a ticket and that the carrier failed to perform the conditions specified in the ticket.

Reproductive Health Bill: Are you for or against?

by Geraldine Rullan
(Manila City, Philippines)

BorromeoPublished in the Daily Tribune LifeSeptember 8, 2011

The Reproductive Health (RH) bill and its predecessors have been in the public and legal debates for many decades now, and the dust is yet to settle. Those circling the raging public debate claim that the issues raised are “much ado about nothing.” Yet this oft-repeated observation about the RH bill has to contend with the fundamentals of faith and economics all in one piece of legislation. To date, achieving an acceptable balance between both has proven to be tricky on all sides.

Existing laws

Article 2, Section 15, of the Philippine Constitution provides for the protection and promotion of the right to health of the people. The duty to abide by the obligations of the Philippines under international law is the raison d’être for the Philippines to become party to the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the Convention on the Elimination of All
Forms of Discrimination Against Women (CEDAW).

Article 12 of the ICESCR recognizes the right to “the enjoyment of the highest attainable standard of physical and mental health.”

Article 12 of the CEDAW also mandates state parties to “take all appropriate measures to eliminate discrimination against women in the field of health care in order to ensure, on a basis of equality of men and women, access to health care services, including those related to family planning.”

Again the same mandate of the Philippine government is found under the International Conference on Population and Development Program of Action(ICPD-PoA), the Beijing Platform of Action (BPA) and the Millennium Development Goal 5 (MDG 5).

Senator Vicente “Tito” Sotto argues that the main provisions of the RH bill are already provided for in other laws, namely, the Local Government Code (LGC). The LGC mandates that local government units provide their own basic services and facilities, including primary health care and maternal and child care, to their constituents.

Sotto also cites Presidential Decree (PD) 442 as amended, the Labor Code, which provides incentives for family planning; or Republic Act (RA) 7883 or the Barangay Health Workers Benefits and Incentives Act of 1995, which provides health education, training of barangay health workers and community building and organizing.

Other health-related objectives of the RH bill are also provided for in RA (Republic Act) 9710 or the Magna Carta of Women; RA 8504 or the Philippine AIDS Prevention and Control Act; RA 9262 or the Anti-Violence Against Women and Children Act; RA 7875 or the National Health Insurance Act of 1996 and RA9501 or the Cheaper Medicines Act.

In addition, PD (Presidential Decree)603 or the Child and Youth Welfare Code and PD 965 also require applicants for marriage licenses to undergo family planning and responsible parenthood seminars. AO (Administrative Order)2008-0029 of the Department of Health provides strategies on how to rapidly alleviate maternal and neonatal issues.

Even RA 8424, the National Internal Revenue Code, provides a curbing effect on having more than four children as the fifth child is no longer covered as a minor dependent for tax deduction purposes.

Is there a need?

For pro-RH advocates, particularly Sen. Miriam Defensor-Santiago, these mandates, while already covered by current legislation, do not prevent the passage of a more specific law.

The six main provisions of the RH bill that have been the subject of heated public debate are the:

1. Protection of the lives of the mother and the unborn child;
2. Provision of adequate reproductive health information;
3. Provision of access to health care facilities and skilled health professionals before, during and after delivery;
4. Prevention HIV and other sexually-transmitted diseases;
5. Provision of access to different family planning methods; and
6. Institution of age and development appropriate reproductive health education.

The next question to ask, then, is that if these main provisions are in current implementation and are already being paid for by Filipino taxpayers, is there really a need for further legislation executing these provisions and consequently additional funding for the same?

Considering that the government has already provided for an estimated P154 million for health promotion, P233 million for health human resource development and P7 billion for health facilities enhancement, in addition to the Department of Social Welfare and Development’s conditional cash transfers, which cover expenses for prenatal care; assisted childbirth by skilled healthcare professionals; attendance in family planning learning sessions; preventive health checks ups, and; vaccines for children, is there really an urgent need to allocate additional further funding under the RH bill?

Moral vs legal issues

The purple ribbon symbolizing the fight for the passage of the RH bill was launched not long ago at the Crowne Plaza Galleria Manila by Reps. Edcel Lagman and Janette Guarin with Lea Salonga and other pro-RH advocates.

In this conclave of well-heeled women and men of ample means, the woman of meager means is the icon that bears up pro-RH common sense arguments of responsible parenthood and the provision of reliable and accessible means of family planning.

For the formidable Roman Catholic Church and other like-minded religious organizations, the RH bill is yet another piece of legislation that will use taxpayers’ money for advocacies that profoundly challenge the claim of
infallibility in their teaching on morals and doctrine. The Anti-RHers tout that the RH bill is a floodgate for promiscuity and immorality, heralding the triumph of economics over personhood.

Even with the much sought-after endorsement of President Noynoy Aquino for the urgent passage of the RH bill, and his AO 2010-0010, the revised policy supporting the achievement of the 2015 MDG to decrease maternal and neonatal deaths and AO 2010-0036, the Aquino health agenda to achieve universal healthcare for all Filipinos, its actual passage remains to be a numbers game in the House of Congress and is still being deliberated upon in plenary for the third and final reading.

While the outcome of the legal debate is left to those in elected office in the said House, the public debate between the moral and legal issues continue to rage. And the question remains the same.

For the Filipino woman with meager means and whose life the RH bill is deigning to fight for, will the provision of greater access to contraception actually address her plight? Will less children actually mean a better life and
greater access to natural and government resources? Will a child who has undergone formal sex education under the RH bill emerge appropriately sex educated and enabled to make discriminating sexual decisions to prevent a population outburst?

As with other laws of a man made kind, the answer will always depend on good governance and on the political will to uplift the plight of those who have less in life. Under the RH bill, will those who have less in life really have more in law?

Legal Aid 101: Setting Up Your Food Business

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: Setting Up Your Food Business

By Geraldine Rullan-Borromeo

Registering your business can be as easy as pie or a regurgitated nightmare if not given careful attention and preparation. A business has often needed to restructure because it has failed to properly consider its legal framework and the extent and nature of its operation.

Who Owns the Business? In registering any food business, the first step is to determine its legal structure, whether it will be a single proprietorship, a partnership, or a stock corporation. Thus, one has to consider the following legal structures:

Single Proprietorship is a business in the name of one person, and the management and operation of the business is in the hands of the registered owner, who makes all the business decisions.

However, personal properties are liable for all the business obligations of the owner and in case he or she is married, the conjugal property will also be liable for the obligations of the single proprietorship. Registration of a single proprietorship is made through the Department of Trade and Industry (DTI).

A Partnership, on the other hand, is a business that is managed and operated by at least two (2) partners. Their liability is in accordance with their partnership agreement as stated in the Articles of Partnership submitted to the Securities and Exchange Commission (SEC). The Partners’ personal properties and their respective conjugal properties are also generally answerable for the liabilities of the partnership business after the partnership assets have been exhausted. Limited partnerships can limit such liabilities per partner, if registered as such. If, for example, a restaurant partnership is indebted to a food supplier in the amount of Php100,000.00 and the restaurant has capital assets and income of only P50,000.00, the balance of the debt may be satisfied from the conjugal or personal properties of the partners.

A Stock Corporation is owned by at least five (5) stockholders. The management and operation of the business is the responsibility of a board of directors elected by the stockholders. It has a juridical personality separate from its stockholders, and the assets of the corporation are primarily responsible for its liabilities. The personal properties of the stockholders cannot pay for the obligations of the corporation unless they manifest bad faith in the transactions personally undertaken by a specific stockholder. The registration of a stock corporation is also made through the SEC. The Name Game After the legal structure has been chosen, the next step is to reserve a business name with the DTI or the SEC, which can be done through www.bnrs.dti.gov.ph or www.sec.gov.ph The name must comply with the Republic Act 3883 also known as the Business Name Law and its Implementing Rules and Regulations.

The territorial application of the food business name must be specified if it is to be used within a barangay, a municipality, a city, a region or used nationwide. This specification will determine the confinement of the use of the food business name within the territory and the extent of validation of the business name applied for. For example, if the territory specified is Makati City, any expansion outside the city will require a new registration.

For purposes of checking the availability of a food business name, the validation will also be within Makati City and will be compared within the food equipment and supplies industry database to check if the name will be confusingly similar to another establishment. A notarized undertaking to change the business name is required in case there has been a violation of the Business Name Law within the food industry database.

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Legal Aid 101: Setting Up Your Food Business Part 2

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: Setting Up Your Food Business Part 2

By Geraldine Rullan-Borromeo

Consider the Location

One important consideration for complying with the requirements for registration is the selection of the business address of the establishment. Also zoning considerations for any food business must be checked with the local government unit where the business is located—the barangay and the municipality or city.

The registration will require a complete address, meaning the building number, the street name, the barangay, and the municipality or city. The floor number or unit number in a building is not required for purposes of registering the business and is better left out to provide some flexibility for a lessee to move to another floor or unit number within the same building.

For businesses that will lease commercial spaces, the conduct of due diligence on the building is called for. The building must be compliant with Republic Act 6541 also known as the Building Code. If the leased space is not compliant, then the business may not be granted a business permit by the municipality or city where the building is located.

Pinoy or Not Pinoy?

Next, the nationality of the business also has to be determined. If it is a 100% Filipino-owned business then Republic Act 7042 also known as the Foreign Investments Acts (FIA) will not come into play. Once there is a foreign investor involved to any extent, it would be wise to check the FIA and verify if the business activity falls within the Negative List which restricts foreign investments or requires a minimum capitalization for foreign investments to be allowed. For more information, log on to www.boi.gov.ph

The Business Details

The nature of the business will also determine if a prior endorsement from another government agency is required. Generally, the different businesses within the food industry do not require any prior endorsement from any government agency.

There are, however, certain business activities within the food industry where a certification is issued by the Bureau of Food and Drugs, which regulates certain food manufacturing activities. The BFAD has a set of requirements that will need compliance before a favorable endorsement is obtained.

There are also different capitalization requirements for the different kinds of businesses within the food industry that can be registered with the DTI and the SEC. For a complete list of the Documentary Requirement for the Registration of Corporations and Partnerships, please visit DOCUMENTARY REQUIREMENTS FOR REGISTRATION and A CITIZEN’S MANUAL ON
REGISTRATION OF CORPORATIONS & PARTNERSHIPS For the DTI please see www.dti.gov.ph

For proof of capitalization, a trust account in favor of the proposed business is required. The depository banks will provide the forms necessary to accomplish this and will require a copy of the proposed application with the DTI or the Articles of Partnership or Incorporation, along with the bank’s own set of requirements for opening a trust account. Once the business has been registered the trust account can be converted into the account of the registered business.

In accomplishing the business registration requirements, the application forms for the DTI, the Articles of Partnership and the Articles of Incorporation of the SEC, it is best to consult with a lawyer or the officers-of the- day of the DTI or the SEC.

The rule of thumb in business registration is to pre-qualify the compliance with the requirements even before submission to the extent possible with the DTI and SEC. Harnessing government resources is a way of making your taxes work for you. Consulting with government lawyers that have been assigned as officers-of the-day for their departments is free. With their help, the registration can go smoothly and will be processed faster.

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Legal Aid 101: Warranties Against Hidden Faults or Defects what you need to know about the warranties of your purchased equipment.

by GERALDINE RULLAN-BORROMEO
(Manila, Philippines)

Legal Aid 101: Warranties Against Hidden Faults or Defects what you need to know about the warranties of your purchased equipment.

BY GERALDINE RULLAN-BORROMEO

What are the warranties that a vendor is liable for in sales of equipment, even if such warranties are not stated in a contract? These warranties are provided by law and are implied in every contract of sale, unless the contract itself states differently. It always helps to know your rights when it comes to equipment warranties.

Under the Civil Code provisions on sales, Article 1547 provides for an implied warranty that the thing sold shall be free from any hidden faults or defects.
The Civil Code provisions on sales also places the responsibility for the warranty on the vendor, should the thing:

•be rendered unfit for the use for which it is intended;

•diminish its fitness for such use, for had the vendee been aware of such diminishing fitness, he would not have acquired it or would have given a lower price for it.

Note that the vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. (Art. 1561)

But vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware of said faults or defects. The warranty shall not apply if the vendor and vendee agree that there shall be no warranty whatsoever, and in such waiver, the vendor must be not aware of the hidden faults or defects in the thing sold, otherwise he will be a vendor in bad faith. (Art. 1566)

LA FUERZA, INC. vs. COURT OF APPEALS and ASSOCIATED ENGINEERING CO., INC. G.R. No. L-24069 decided on June 28, 1968 illustrates the limitations of the application of these warranties. La Fuerza, a winemaker engaged Associated Engineering to manufacture and install a flat belt conveyor system for La Fuerza wine bottles.

In May 1960 the installation of the flat belt conveyors for wine bottles was completed and several trial runs until the month of July 1960 were made in the presence of La Fuerza officers. La Fuerza discovered that the conveyor system, when operated caused several bottles to collide with each other. In fact, some bottles jumped off the conveyor belt and were broken, causing damage.

When Associated Engineering billed La Fuerza for the balance of the contract price, La Fuerza refused to pay as the conveyor system installed did not serve the purpose for which it was manufactured and installed. Associated Engineering filed a court action to collect the balance.

The Supreme Court applied the provisions on sales of the Civil Code, namely Articles 1561 and 1567, where the vendee may choose between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. The choice of the remedy must be exercised within six months from the delivery of the thing sold. The Court held that:

“Article 1497 on sales of the Civil Code provides that when the thing subject of the sale is placed in the control and possession of the vendee, delivery is complete. Delivery is an act of the vendor. The vendee has nothing to do with the act of delivery by the vendor. On the other hand, acceptance is an obligation on the part of the vendee (Art. 1582). Delivery and acceptance are two distinct and separate acts of different parties. Consequently, acceptance cannot be regarded as a condition to complete delivery.”

Thus, upon the completion of the installation of the conveyors in May 1960, and until after the last trial run, in July 1960, La Fuerza could have exercised the right to categorically accept or reject the installation. Since the conveyors were actually in its possession and control, the conveyors are considered as delivered and the six (6) month period to accept or reject under Article 1571 had begun to run.

However, La Fuerza merely informed Associated Engineering of the defects and did not categorically avail of the right to demand rescission or the withdrawal from the contract until April 1961, or over 10 months after the installation of the conveyors in question had been completed on May 30, 1960. Due to the lapse in the six-month period provided, La Fuerza was sentenced to pay Associated Engineering the balance of the contract price with interest from July 1960 until fully paid, plus as attorney’s fees and court costs.

While buyers are protected by the implied warranties provided by law, the Court was adamant that such remedies must be exercised within the periods provided by law and not a day longer. The Court held in its closing statement in the case that:

“Indeed, in contracts of the latter type, especially when goods, merchandise, machinery or parts or equipment thereof are involved, it is obviously wise to require the parties to define their position, in relation thereto, within the shortest possible time. Public interest demands that the status of the relations between the vendor and the vendee be not left in a condition of uncertainty for an unreasonable length of time x x x.”

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Legal Aid 101: Know Your Labor Laws

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: Know Your Labor Laws

By Geraldine Rullan-Borromeo

Working hours in the food business run longer compared to office-run businesses. The seasonality of demand in the food business dictates that working hours and even the branch-to-branch reassignment of employees should still be compliant with labor laws.

The business owner can regulate work hours according to the needs of the business. Labor laws recognize and respect the exercise by management of certain rights and prerogatives. These include hiring, work assignments, working regulations, and the supervision of workers.

The management’s prerogative is subject to the limitations imposed by law, a collective bargaining agreement, an employment contract, employer policy, and the general principles of fair play.

REGULAR WORK HOURS

Article 83 of the Labor Code (LC) provides that regular work hours should not exceed eight hours per day. Any time worked in excess of eight hours is considered overtime, for which a premium on the hour wage rate is added.

For a restaurant which has downtime, with breakfast, lunch, and dinner being the peak work hours, a restaurant worker’s hours can be cut into shifts so that the total number or regular hours worked by each employee does not exceed eight hours.

For example, if a worker’s first shift begins at 6 am to serve breakfast; his shift may end at 10 am and begin again from 11 am to 3 pm. With those two shifts he completes his eight-hour work day and serves customers during the busiest hours without being compensated for waiting time.

WAITING TIME BETWEEN SHIFTS

Waiting time not compensable as long as the employee is not on call during said waiting time, and the waiting time doesn’t benefit the employer.

If the employee is required to be at the employees’ lounge in the restaurant and is waiting to be called to work anytime, then such is compensable working time.

If the employee is allowed to leave the restaurant but must be accessible to the employer anytime with the corresponding duty to report for work at any time, then such waiting time is also compensable. This is according to Section 5-b, Rule I, Hours of Work, Book III, Conditions of Employment, Omnibus Rules Implementing the Labor Code (ORILC).

REST PERIODS AND MEAL TIMES

Waiting time is distinguished from brief rest periods, which are of such short durations and don’t serve the employee’s interest.

The Labor Code provides that brief rest periods are counted as hours worked and any period of time which is less than 20 minutes—designated as either as a rest or coffee break—shall be considered as compensable working time.

Regular meal breaks, however, must not be less than one hour unless the following conditions exist:

a. Where the work is non-manual work in nature or does not involve strenuous physical exertion;

b. Where the establishment regularly operates not less than sixteen (16) hours a day;

c. In case of actual or impending emergencies or when there is urgent work to be performed on machinery, equipment, or installations to avoid serious loss which the employer would otherwise suffer; and

d. Where the work is necessary to prevent serious loss of perishable goods. This is according to Section 7, Rule I, Book III of the ORILC.

OVERTIME

No employee may be made to work beyond eight hours a day against his will. However—under Section 10, Rule I, Book III of the ORILC—there are instances when overtime may be demanded by an employer:

a. When the country is at war or when any other national or local emergency has been declared by Congress or the Chief Executive;

b. When it is necessary to prevent loss of life or property, in case of imminent danger to public safety, due to actual or impending emergency in the locality caused by serious accident, fires, floods, typhoons, earthquakes, epidemics, or other disasters or calamities;

c. When there is urgent work to be performed on machines, installations, or equipment, in order to avoid serious loss or damage to the employer or some other causes of similar nature;

d. When the work is necessary to prevent loss or damage to perishable goods;

e. When the completion or continuation of work started before the eighth hour is necessary to prevent serious obstruction or prejudice to the business or operations of the employer; or

f. When overtime work is necessary to avail of favorable weather or environmental conditions where performance or quality of work is dependent thereon.

Under Article 90 of the Labor Code, the cost for overtime pay which is paid at a minimum a premium rate of percent of the hourly wage rate (HWR). This rate is not a fixed rate since the employer may increase the overtime rate (OR) in accordance with his discretion. The formula for computing overtime rate is: HWR + OR x Hours of Overtime Worked.

NIGHT TIME WORK FOR WOMEN

Article 130 of the LC which provided that women are not allowed to work at night between 10 pm to 6 pm the following day in industrial, commercial, and agricultural industries has been repealed by Republic Act (RA) No. 10151.

RA No. 10151—An Act Allowing the Employment of Night Workers—was approved last June 21, 2011.

Night time work for women is now unrestricted. Still, Article 158 of RA 10151 added protective measures during and after pregnancy to enable them to have alternate working hours for 16 weeks in consideration of their condition.

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Legal Aid 101: F&B Contracts Contract Preparation Guidelines in the Food and Beverage Business

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: F&B Contracts Contract Preparation Guidelines in the Food and Beverage Business

By Geraldine Rullan-Borromeo

The food and beverage business, whether it is in production, packaging, distribution, retailing or food service, is subject to ambiguities in transactional relations should the parties fail to put their agreement in writing. And even if such agreement was put in writing, the business is fraught with future disputes between business partners, suppliers and buyers, employers and employees, manufacturer and distributor, etc. should the agreement not clearly outline the obligations and responsibilities of the parties.

The following is a basic checklist of the preliminary steps that business partners must take before they draft the general provisions that a business contract must contain. It is a useful guideline to help navigate the many pitfalls that businesses fall into when they overlook basic contract preparation rules.

WHAT IS IN YOUR BUSINESS CONTRACT?

A contract is by definition an undertaking to give something, to perform a service or do an act in favor of the other party. It must be clear that the parties have consented to a clearly defined object of the contract and that there is a cause or consideration for said performance of an act or service, as defined by the New Civil Code in Article 1305.

Contract preparation is key, and there are several steps that must be undertaken by each party before they give their full consent to the terms and conditions in a contract. As a preliminary step, the parties can write a term sheet together where they will outline the specifics of what service or act constitutes the object of the contract and the parties who will be named in the contract. There must also be an agreement by both parties to provide access to corporate documents to satisfy the other party of its legitimacy as a business, its financial standing and compliance with government rules and regulations. This step is crucial since the conduct of due diligence to inquire into the “legal health” of a future business partner cannot be overlooked to avoid partnering with a either a defunct, bankrupt or worse an illegal business.

While registrations in the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) and city or municipality where the business is located may be requested from your future business partner, these registrations are by their nature, public records. Thus, it is available for photocopying or issuance of certified true copies by any person inquiring with said agencies. The SEC also provides the company or partnership financial statements that have also been submitted to the BIR by these legal entities. The SEC provides General Information Sheets (GIS) on the status of companies and their current stockholders and organization structure.

Other regulatory bodies, like the Bureau of Food and Drugs (BFAD) have special requirements for the food industry to comply with. Registration for specific activities must be verified to ensure legitimacy of a future business partner. Environmental compliance is also a major concern for food manufacturing activities that may cause unlawful emissions to the environment, including water treatment and industrial waste disposal requirements which should be looked into.

Access to your future business partner’s organizational charts and employee list, disclosures of any conflicts of interest on similar current or future business plans, asset list, if such asset is part of the business contract, should be given by the other party in good faith and the refusal to do so may be a sign of bad faith in the conduct of negotiations. Mutual access is indicative of the intention of the parties to come to a fruitful conclusion of a contract.

Food equipment inventories, supply and distribution chains, warehousing requirements, food transport lines, food handlers; chefs’ resumes and even food and drink formulations are only some of the confidential disclosures that the other party may find helpful before they commit to entering into a contract.

However, since some of these records are confidential, parties enter into a Confidentiality Agreement on the onset or a Non-Disclosure Agreement to protect the information divulged during contract preparation. Remedies in cases of a violation of the confidentiality are stated in said Agreements, with specific damages to compensate the party whose information was divulged.

After the conduct of due diligence and access to corporate information is granted, the parties may now enter into a Memorandum of Understanding or Agreement (MOU or MOA), confident of the corporate standing of both parties. The MOU or MOA will now outline the reasons that the parties are entering into the contract; the specific obligations of both parties in the performance of the future contract; general guidelines for compensation of the party providing the service or performing the act; and the parties will now explore the extent of their commitments under the contract via further disclosures of their business.

The general provisions that the parties need to study will be discussed in the next issue which includes a discussion on contract titles; dating of documents, proper identification and authorization of parties; electronic documents; remedies in case of breach or acts of God; performance and assignment restrictions; prescription of actions; amendment procedures; waiver of rights; dispute resolution and termination provisions.

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Legal Aid 101: F&B Contracts (Part 2) Contract preparation guidelines in the food and beverage business

by Geraldine Rullan-Borromeo
(Manila, Philippines)

Legal Aid 101: F&B Contracts (Part 2) Contract preparation guidelines in the food and beverage business

By Geraldine Rullan-Borromeo

Contracts bear the written intention of parties to a business transaction, and much care and attention is called for to ensure that the provisions that make up a particular agreement are in consonance with said intentions. Template contracts that are ready to be filled in with the details of an agreement may be an easier and cheaper option to take, including cut and paste provisions that may seem applicable to a business model. However, the more prudent action is to seek the advice of a lawyer who specializes in contracts, lest a loophole or an ambiguity be inserted in the contract which will work out a difficulty in the performance of the obligations or the enforcement of its protective measures. What follows is a checklist of the essential provisions for a business transaction to ensure that the basic contract nuts and bolts are in place.

1. TITLE OF THE CONTRACT.
While the title of a contract does not control the nature of the contract as the provisions themselves construed together will define the kind of contract, it is best to aptly describe a contract in accordance with its provisions. One may call an agreement an “Integrated Distribution and Warehousing Contract of Food Grade Packaging” but if the basic service is merely for storage, and the contract provisions lack a distribution clause, then no agreement to distribute the goods will be imputed on the parties.

2. DATE OF THE CONTRACT.
The date of execution of a contract, the date when it is signed by the parties and notarized, is the date of reckoning when the obligation is to be performed; the date to count from when remedies may be sought to enforce performance or damages; and the date to start off to compute the term of the agreement. Thus, dating a contract is an essential step to avoid second guessing the date of execution.

3. PLACE OF EXECUTION.
Contract laws differ from country to country, and it is best to indicate the country where the contract is signed to determine which law applies. Cross border contracts that are signed by different parties in different countries specify the law of a specific country that will govern their contract to avoid the uncertainty of whose contract law will apply.

4. PROPER IDENTIFICATION OF PARTIES AND DESIGNATED REPRESENTATIVES.
The parties to a contract must be properly named, taking care not to confuse sister or affiliate companies. Also when contracts are signed by representatives for juridical persons (corporations and partnerships), said representatives have to be duly authorized via a notarized corporate secretary’s certificate or board resolution or a notarized partnership authorization to ensure the capacity to represent. These are relevant to ensure that the parties authorized the business transaction; that they will duly perform the obligation; and, answer for the liabilities of default.

5. PRINCIPAL PLACE OF BUSINESS.
The contract must specify the principal place of business for purposes of fixing the venue for civil actions and to determine the local taxation aspects of the business transaction.

6. WHEREAS CLAUSES.
While whereas provisions are not required, it provides an overview of the fundamental obligations undertaken by the parties that define the nature of the contract.

7. DEFINITION OF TERMS.
Business contracts makeup the engagement of technical services; sale and or storage of industrial goods with special descriptions; channels of distribution; accounting terms; etc., thus, it is always more prudent to include a section where each relevant term is defined to avoid misapplication of the contract provisions. Seek the assistance of the technical experts of the parties as they are the best persons to define these terms.

8. DEFINITION OF THE OBLIGATION.
This is the heart of the contract and the obligation to be undertaken by each party. It must be clearly defined and enumerated for each party in one section of the contract so that in can easily be referenced during the implementation of the contract.

9. SAMPLE FORMULAS.
Most business contracts necessitates the application of a formula to compute prices, interest, commissions, levels of compliance with sales targets, market share, or even computation of delay in the performance of the obligation, etc. Thus, including a sample formula will remove any future disagreement on how to compute and allow for smooth sailing in the performance of the obligations and payments for the same.

10. SCHEDULE OF DELIVERABLES.
Including this schedule either in the body of the contract or as an Appendix is essential to ensure that both parties are aware that time is of the essence and that strict performance of the obligation according to the said schedule is expected. Penalties for late performance may also be included.

11. PRODUCT OR SERVICE WARRANTIES.
Reference to the legal requirements for warranties is best resorted to make sure that the warranties are not in violation of the minimum requirements of the law. The Civil Code provisions on Obligations and Contracts may be referred to, including special laws like the R.A. 7384, the Consumer Act

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